Friday, December 14, 2018

You've Got RAIL

One of my favourite types of purchases is a stock that I've already owned and sold for a profit. A lot of brain damage is saved from the fact that I already know the company. This is the case with FreightCar America (RAIL), shares of which I have previously purchased and sold as discussed here and here.

RAIL manufactures railcars, which is a highly cyclical business. Demand ebbs and flows, while costs are fixed. And so these stocks get heavily beaten down when the outlook is bleak.

As a result, RAIL is now a net-net, trading at $95 million with current assets of $210 million and total liabilities of $105 million. The company is also debt free, and $60 million of those current assets are comprised of cash and marketable securities. The company trades for less than half of its total tangible book value.

RAIL is cheaper than its competitors because its specialty has been coal cars, which are particularly out of favour at the moment. But the company has been diversifying into other types of cars. New management has been focused on improved quality and reducing defects and costs related to manufacturing different types of cars, which has led to losses in the short-term. Right now there is only enough backlog to keep the lights on for another couple of quarters, so one can understand why the market is spooked.

But with a rock solid balance sheet, I expect the company to outlast a downturn. I also think there is the possibility of a sale to a larger consolidator as the price must look very attractive to competitors at the present time.

Wishing you and yours all the best during this market sell-off.

1 comment:

Brian Harper said...

Thanks Saj....I've also owned in the past, and I've looked at recently but held back from purchasing due to the fact that they presently have negative GROSS margins. Sales are really not that depressed if you look back historically, and they never before have had a full year in which they lost money before accounting for SG&A. The company has a very underutilized facility in AL which is way too big for their uses, and their competitors all make cars at cheaper cost in Mexico. I know that I'm describing WHY the stock is where it is, but it gives me pause that they might continue burning their cash and leased assets as they try to turn it around. Navistar paid them to take the lease and operations over
https://www.sec.gov/Archives/edgar/data/1320854/000117184318001566/f8k_022818.htm

It's a tough call but looks very cheap!

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